The rise in the cost of crude oil, coupled with the depreciation of the naira against the United States dollar, might lead to a hike in the pump price of Premium Motor Spirit, popularly called petrol, oil marketers stated on Sunday.
It was also gathered that the sharp rise in crude oil price to about $94/barrel and the crisis around forex, had warranted a gradual increase in the amount being quietly spent as subsidy on petrol by the Federal Government, reports The PUNCH.
Dealers in the downstream oil sector explained that the cost of crude oil and the exchange rate of the dollar accounted for over 80 per cent of the cost of PMS.
Brent crude, the global benchmark for oil, rose to $94/barrel on Sunday, the highest figure in 2023. Oil had started the year at about $82/barrel, dipped to $70/barrel in June, but traded above $92/barrel in the past week.
Also, The PUNCH reported on Thursday that the naira weakened to N950/dollar as forex scarcity worsened.
The report stated that the naira fell further against the dollar the preceding day (Wednesday), after closing at 950/$ at the parallel market.
Bureau de Change operators had told The PUNCH that the naira, which earlier closed at 930/$ at the close of operations on Tuesday, was bought and sold at 935/$ and 950/$ on Wednesday.
Although the Federal Government and its Nigerian National Petroleum Company Limited had insisted that subsidy on petrol had ended, following the deregulation of the downstream oil sector, operators insisted on Sunday that the government was implementing quasi-subsidy.
They explained that with the latest rise in crude oil price, the cost of petrol was meant to increase, stressing that if the government insists on leaving the commodity at N617/litre, then subsidy on PMS had been returned quietly.
The marketers explained that in July when the cost of petrol was raised to N617/litre, crude oil traded around $82/barrel, while the the exchange rate was not as high as N950/$ at the parallel market.
The Nigerian Association of Road Transport Owners corroborated the concerns of marketers, as it stated that the price cap on petrol had made it tough for marketers to comply with the demands of NARTO with respect to increasing the cost of transportation for petrol.
“The Group Chief Executive Officer of NNPC, in one of his statements, had pointed out that as long as the dollar continues to rise, Nigerians should not expect petroleum products prices to be pegged. The cost of crude oil is also on the rise and it impacts on petrol price, because PMS is derived from crude.
“So in this price deregulation regime, once the dollar increases, automatically it means that the cost of importing petroleum products will also increase. And the cost of every other related service will rise,” the National Public Relations Officer, Independent Petroleum Marketers Association of Nigeria, Chief Chinedu Ukadike, stated.
He added, “So the fuel we are buying today at N617 or N596 depending on where you buy it and based on the nearness to depots, is actually below what the price should really be, going by the rise in dollar and crude oil price.”
Ukadike stated that though the rise in crude oil price would increase Nigeria’s foreign exchange earnings, the forex was being used to import refined products.
“I said earlier that what we are experiencing now is quasi-deregulation. The rise in crude oil price has both positive and negative effects on Nigeria. It is positive because it increases our generation of dollars when we sell the crude.
“But it is negative in the sense that we still use that dollar that we have got to import the finished products of crude. That is the problem. For if Nigeria is refining products, then there will be a windfall, but since we import with the dollar that we make, then it makes no sense.”
On whether the rise in oil prices would warrant further hike in the cost of PMS and other finished products, thereby increasing subsidy on petrol particularly, Ukadike replied, “Yes, of course.
“The gap is becoming too much. Also, the exchange rate gap between the official and parallel markets is widening. And these gaps have to be filled by the government through quasi-subsidy on petrol.
“You also know that most of the investors who tried to import products when it was announced that the subsidy on petrol had been removed, are now finding it very difficult to do so.
“This is because after buying the dollar in the parallel market, they cannot recoup what they have invested. So the government must be transparent with this subsidy removal thing. It should apply it to the fullest, so that competition can set it.”
On his part, the President, Petroleum Products Retail Outlets Owners Association of Nigeria, Billy Gillis-Harry, said though the cost of crude had been rising lately, the NNPCL should be able to manage it for the benefit of Nigerians, with respect to petroleum products prices.
“Crude oil is selling at a higher price and that price should impact positively, because the major importer of petroleum products is the NNPC and they do that on a swap basis, unless they are telling us that the swap is not efficient.
“For if it is efficient, they should have more money for the size of crude oil they sell, which should impact on the price they pass on to Nigerians. Yes, today it is a commercial company, but it is still owned by Nigerians and is a sovereign company.
“And the fact that Nigerians must benefit from their natural endowment by God should be reflected in the pricing of products by NNPC. That is all I’ll say about this issue,” he stated.